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TRUSTS - The beneficiary

Wednesday, March 06, 2019 @ 7:52 AM  

Lexis Advance® Quicklaw®
Appeal by the defendant from summary judgment awarding the respondent arrears of rent. The respondent was the beneficiary of a trust that owned a commercial building in which the appellant was a tenant. After expiry of the lease, the landlord and appellant did not agree on a new lease, but the appellant remained in the building. Eventually, it stopped paying rent.  After the appellant had stopped paying rent, the respondent transferred its beneficial interest in the building, together with the shares in the corporate trustee in whose name the building was registered, to a third party. The respondent then brought an action in its own name against the appellant for the rent arrears. The summary trial judge concluded the Sale Agreement demonstrated an intention of the parties for the respondent to continue to hold a beneficial interest in the amounts alleged to be owed by the appellant. The respondent had standing to sue the appellant for the rent arrears and there was an intention to assign the overholding tenancy to the respondent.

HELD: Appeal allowed. New trial ordered. The present circumstances did not meet the test for a principled exception to the doctrine of privity. The fact that the respondent was dealing directly with the property manager rather than doing it through the landlord, did not demonstrate that the overholding tenancy was assigned to it but simply meant that the respondent was ignoring the formalities of the trust for the sake of its own convenience.  There was no evidence that the landlord intended to assign the overholding tenancy to the respondent while it continued to hold legal title to the property. The Sale Agreement did not serve as an assignment of the lease to the respondent. As the landlord was not a party to the Sale Agreement, the document could not have effected an assignment of the overholding tenancy, in whole or in part, from the landlord to the respondent. There was no basis for finding that the landlord and appellant intended to extend the landlord’s benefits under the lease and the overholding tenancy to beneficiaries of trusts of which the landlord could be or become the trustee. There was nothing in the lease to evince such an intention, and there was no extrinsic evidence that such an intention existed at the time the lease was entered into. The mere possibility that the landlord held, or might in the future hold, the property in trust for another person was not sufficient to establish an intention on the part of the contracting parties to extend the benefits of the lease to the beneficiary of the trust. The summary trial judge also erred in holding that the respondent met the test for permitting a beneficiary of a trust to directly sue a third-party debtor of the trust because the judge never considered whether there were special circumstances justifying a departure from the general rule that a beneficiary could not directly sue a third-party debtor of the trust. This was not an appropriate case for this Court to decide the issue of special circumstances.

Price Security Holdings Inc. v. Klompas & Rothwell, [2019] B.C.J. No. 120, British Columbia Court of Appeal, D.F. Tysoe, D.C. Harris and S.A. Griffin JJ.A., January 31, 2019. Digest No. TLD-March42019007